As we start the new year, one of the hottest topics continues to be the real estate market. And it’s no surprise considering 2020 and 2021 were both record-breaking years. Limited inventory and strong demand made homeownership difficult to reach – especially for first-time homebuyers. So the big question is, “Will the housing market improve in 2022?” The short answer is yes and no.
2022 will likely remain a seller’s market in West Michigan, but we could begin to see things balance out. Local real estate experts predict anticipated mortgage rate increases, along with the rising number of Millennials entering the housing market, will continue to drive West Michigan’s real estate sales in 2022.
Here’s a summary of 2021’s housing market and what we’re predicting for the year ahead.
2021 Recap
Average Sales Price
High demand and low supply led to high home sale prices in 2021, and they’ve continued to rise over the last five years in West Michigan. In Ottawa County, the average sales price was $348,099 in 2021 – 13% higher than 2020 and 29% higher than five years ago. In Kent County, the average sales price was $307,691 in 2021 – 15% higher than 2020 and 47% higher than five years ago.
Sold to List Ratio
The sold to list ratio is a strong measure of buyer demand. It’s the average ratio of sale price to original list price, in percentage. Numbers below 100% indicate that, on average, properties sold for less than their original list prices. And numbers above 100% sold for more. For the first time in the last five years, the sold to list ratio for both Ottawa and Kent Counties ended above 100% in 2021 – 101.4% for Ottawa and 103.5% for Kent.
Housing Inventory
Supply levels were lower in 2021 than 2020. Overall, the number of listings in Ottawa and Kent Counties was approximately 42% lower than 2020. The chart below highlights how low today’s housing supply is compared to just five years ago in the West Michigan area.
2022 Outlook
1. Home prices rise at a slower rate
Home prices have escalated over the last couple of years, and they’re not expected to go down. Prices will keep rising due to continued low housing supply and buyer demand, but at a slower rate. Experts expect price increases somewhere between 5% and 7% for 2022. Here’s a snapshot of this year’s forecasted appreciation.
2. Inventory levels start to turn around
Housing supply will be key to this year’s real estate market, and we’re starting to see early signs of optimism. Builder sentiment for newly-built single-family homes moved to 84 out of 100 in December, according to the NAHB/Wells Fargo Housing Market Index. The score hasn’t been that high since February 2021.
Locally, thousands of new houses are set to hit the market in Ottawa County in the next 18 months. Ryan Kilpatrick, Housing Next’s Executive Director, says about a third of those homes are aimed at low- to middle-income families in an effort to stabilize housing prices. “The big issue we have right now is supply,” Kilpatrick continues. “The more we add supply, the more we can reduce competition for housing (and prices).” Housing inventory could improve a little in 2022, but it’ll likely remain a problem for years to come.
3. Mortgage rates increase, but still historically low
Low interest rates were a major contributing factor to the real estate craze that we saw in 2020 and 2021, but they’re expected to climb this year. Dr. Lawrence Yun, the National Association of Realtors’ Chief Economist, expects the 30-year fixed mortgage rate will increase to 3.5% by the end of 2022 as the Federal Government raises interest rates to control inflation. This is still lower than the pre-pandemic rate of 4%.
What does this mean for buyers?
Hope is on the horizon. You should start to see the number of options grow as more homes hit the market and buyer intensity eases. But, watch for rising mortgage rates and home prices. They’ll be a great motivator to buy sooner rather than later as rate hikes could affect your purchasing power.
What does this mean for sellers?
Home prices are projected to continue to climb, just at a more moderate pace. Selling your house while buyer demand is still high will truly put you in the driver’s seat. But, don’t wait too long. With more listings projected to become available, your ideal window of opportunity to stand out from the crowd won’t last forever.